U.S. companies provided 50 percent of Europe’s liquefied natural gas supplies in 2022, along with 12 percent of its oil. Russian oil and gas shipments to the continent have shriveled by half, beset by boycotts, sanctions and an EU price cap. Global oil and gas trade routes have been redrawn and renewable energy development has received a massive financial and political shot in the arm.
The turnabout has put a new spotlight on the United States’ role as the world’s biggest energy producer, whose foothold in Asia has also strengthened in the past year. At the same time, the EU and the Biden administration are working more closely together to develop the next generation of clean energy — one that doesn’t include Russia — a transition that will lean heavily on U.S. fossil fuel in the coming few years.
“Europe’s energy divorce from Russia is nearly complete,” said Andrew Lipow, president of oil industry and market consulting firm Lipow Oil Associates. “We’re seeing a permanent change as far as how Europe gets its energy in the future. One result is the United States and European energy policy are going to be more closely intertwined.”
Europe’s reaction against its largest energy supplier’s attempt to remake the map has sent shockwaves through global markets. These were felt most acutely on the continent, where electricity and natural gas prices surged as much as 15-fold, prompting governments to spend more than $800 billion to ease consumers’ financial burdens.
The rapid reshuffling in oil and overseas gas shipments began after the February 2022 invasion and continued through the imposition of price caps on Russian shipments imposed late last year and earlier this month — shifts that will be felt for years.
“The energy world has changed,” Sen. Lisa Murkowski (R-Alaska) said last week at an Energy and Natural Resources Committee hearing on the invasion’s aftermath. “It has changed in the here and now.”
“It’s astonishing what’s happened,” Assistant Energy Secretary Andrew Light said at the same hearing. “This energy struggle will continue. It changes the world.”
U.S. fossil fuel exports, particularly liquefied natural gas, played a huge role in keeping the European alliance together over the past year, said Daniel Yergin, vice chairman of S&P Global and author of “The New Map,” a book examining the geopolitics of energy. Putin had hoped to use gas as a weapon to shatter European support for Ukraine, he said, a miscalculation that so far hasn’t come to fruition.
“The war in Ukraine has demonstrated that U.S. LNG exports are not only of economic energy importance,” Yergin said in an interview. “They’ve also now taken on a strategic importance. U.S. LNG has become one of the foundations of U.S. and European energy security, part of the replacement for Russian gas and has even become part of the arsenal of NATO.”
The U.S. supplied Europe with half of its LNG supply last year and is expected to cement its position as a steady source of the fuel to Germany and other EU member states. Enough export facilities, particularly around the Gulf Coast, are slated to open in the next three years to nearly double export volumes to 20 percent of overall U.S. natural gas output.
Frank Fannon, a former State Department first assistant secretary for energy resources under the Trump administration, said the decision by U.S. companies to structure their multi-year delivery contracts to allow buyers to ship the gas wherever they wanted played a major role in overcoming Russia’s switching off its pipelines. That market innovation allowed European buyers to persuade the Asian companies that held the gas contracts to reroute them toward the EU — for a price.
“I would find it unimaginable there would be a chance of weathering the storm in Europe but for American LNG,” said Fannon, who is now managing director of energy and geopolitical advisory firm Fannon Global Advisors. “It’s absolutely inconceivable. It isn’t just the volumes of U.S. gas, but also the way that American companies have transformed the market.”
Russia’s loss of major markets for its natural gas will continue to hurt Putin’s geopolitical influence and could have further implications for Russia, Fannon added. Moscow last year agreed to ship more natural gas to China, which is becoming one of its biggest customers for energy — a fact that may give Beijing more leverage over a Russia that’s increasingly isolated from the West, Fannon said.
“Russia is on its way to becoming a client state of China,” Fannon said.
In addition to the surge in gas shipments to Europe — from the U.S. as well other producers, such as Qatar — this year’s mild winter will probably help prevent a repeat of the spike in gas prices seen last year, when the benchmark in the Netherlands spiked to levels more than ten times the U.S. price. Europe’s storage started this year at more than 80 percent full, making it far easier to top them off by the time temperatures turn colder this fall.
By itself, the United States’ relatively recent role as the world’s largest gas exporter doesn’t necessarily add geopolitical clout to the White House, said Ira Joseph, global fellow at Columbia University’s Center on Global Energy Policy. That’s because unlike its counterparts in the Middle East and other energy powerhouses, the U.S. government doesn’t have direct control over its oil and gas export industry.
While the Biden administration publicly said it was pressing allies to divert their LNG cargoes to Europe, it’s unlikely companies in Japan or elsewhere needed much persuading given how much money could be made selling their supplies of U.S. gas to desperate European companies, Joseph said.
“U.S. LNG is going to Europe because they’re paying a higher price,” Joseph said. “It’s not a natural gas Marshall Plan here. There’s no American Inc. exporting LNG.”
In the oil market, U.S. crude exports rose by more than 10 percent for the first 11 months of 2022 compared with the same period of 2021, according to the most recent data from the U.S. Energy Information Administration. Shipments hit record highs in the final quarter of the year.
Some of the increase came as global economies gained steam after pandemic supply chain disruptions began to ease. What has changed, analysts said, was that the United States was becoming a supplier of choice for European and Asian countries that were stepping away from Russia.
At the same time, Exxon Mobil and other major U.S. oil companies are still loath to invest their bumper profits in new oil field projects, instead preferring to return money to shareholders. That’s a signal that even with Russia’s withdrawal from Europe’s oil markets, the good times for U.S. oil may eventually fade, said Morgan Bazilian, public policy professor at the Colorado School of Mines.
“It’s sort of changed the scale of that American energy landscape,” Bazilian said. “Will it last? You’re seeing more financial responsibility, but that will not translate to a lot more oil and gas.”
The future looks brighter for U.S. LNG exports, which actually fell in 2022 after having risen for years. An explosion in June forced Freeport LNG, the Texas company that is the country’s second-largest LNG exporter, to shut down, eliminating 20 percent of U.S. gas shipments abroad. Freeport started shipping out gas in limited quantities earlier this year.
Europe’s growing demand for LNG has caused Germany and other EU countries to spend billions on new natural gas import terminals. That should feed demand for more U.S. natural gas at least in the short term, analysts said.
Where LNG may have a bigger influence in Europe is in reinforcing the more traditional role the United States has had in Europe — that of military protector, said Matt Gertken, senior vice president for geopolitical strategy at BCA Research.
“Increased European reliance on liquefied natural gas entails increased reliance on maritime trade and supply line security, wherein the U.S. Navy plays an indispensable role for Europe,” he said.
Still, an increased flow of oil and gas east across the Atlantic may be a relatively short-term phenomenon, analysts said. Instead, Europe is accelerating development of renewable energy in a way that could lead to less need for U.S. oil and gas in the not-too-distant future.
It has added some LNG import terminals to bring in more gas, but it is also investing heavily in hydrogen infrastructure, electric vehicles and a new generation of small, modular nuclear plants — the sorts of projects that the Biden administration has been pushing in the United States. Carbon capture technologies to remove greenhouse gases from the atmosphere — heavily promoted in Biden’s climate law — are also expected to find fertile ground in Europe.
Countries in the European Union had planned even before the war to shift away from oil and gas in the long term. But Putin’s decision last year to turn off the Nord Stream natural gas pipelines has convinced European leaders to “supercharge” their move toward manufacturing as much of their own energy as possible, said Maroš Šefčovič, the commission’s vice president.
“It has accelerated all our efforts in getting as much as possible from indigenous European [energy] sources, which are renewables,” Šefčovič said in an interview.